An Empirical Model of Wage Dispersion with Sorting

By Jesper Bagger, Rasmus Lentz. 2009

208 citations recorded by the source corpus.

This paper studies wage dispersion in an equilibrium on-the-job-search model with endogenous search intensity. Workers differ in their permanent skill level and firms differ with respect to productivity. Positive (negative) sorting results if the match production function is supermodular (submodular). The model is estimated on Danish matched employer-employee data. We find evidence of positive assortative matching. In the estimated equilibrium match distribution, the correlation between worker skill and firm productivity is 0.12. The assortative matching has a substantial impact on wage dispersion. We decompose wage variation into four sources: Worker heterogeneity, firm heterogeneity, frictions, and sorting. Worker heterogeneity contributes 51% of the variation, firm heterogeneity contributes 11%, frictions 23%, and finally sorting contributes 15%. We measure the output loss due to mismatch by asking how much greater output would be if the estimated population of matches were perfectly positively assorted. In this case, output would increase by 7.7%.

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Citations in the corpus

Reallocation Effects of the Minimum Wage (2021, background): “…index as a parsimonious measure for establishment quality that reflects not only the establishment wage premium but also workers’ preferences over nonwage amenities, as suggested by Bagger and Lentz (2018) (see Online Appendix B.5 for a detailed description of how the poaching index is computed).”
Job Search Behavior Among the Employed and Non-Employed (2017, unknown): “W (n, 0, x) = τu(K(n, x)− V ) + (1− τu)U(x), (5)”
A Distributional Framework for Matched Employer Employee Data (2019, background): “Examples are De Melo (2009), Lise, Meghir, and Robin (2008), Bagger, Fontaine, Postel-Vinay, and Robin (2011), Hagedorn, Law, and Manovskii (2014), Lamadon, Lise, Meghir, and Robin (2013), and Bagger and Lentz (2014). For example, they may not be consistent with wage posting models with match-specif”
Earnings Inequality and the Minimum Wage: Evidence from Brazil (2017, background): “A small number of papers have provided microfoundations for the AKM specification in cross-sectional contexts, including Barlevy (2008), Bagger et al. (2014), and Burdett et al.”